On Wednesday afternoon, the same day Senate Republicans ceded to political pressure to allow floor deliberations over financial regulatory reform, former Federal Reserve board member H. Robert Heller outlined his proposal for financial market reform in the second annual Hsieh Memorial Lecture in Green Library.
As a financial industry veteran with extensive experience in both the public and private sectors, Heller offered a unique perspective on current financial reform efforts. He often cited current financial reform legislation before the U.S. Senate, agreeing with most of its proposals but also questioning some of its organizational structure.
University Librarian Michael Keller introduced Heller, noting that financial reform is a “topic of instant need and recognition.”
A former UCLA economics professor and senior vice president and director of international economic research at Bank of America in San Francisco, Heller was appointed by President Reagan as a member of the Board of Governors of the Federal Reserve, notably serving with former chairmen Paul Volcker and Alan Greenspan. Following his time with the Federal Reserve, he joined VISA International as executive vice president for finance, risk management, audit and security and was later elected president and CEO of VISA U.S.A.
The Bender Room of Green Library was transformed on Wednesday as about seventy attendees came to hear Heller speak on the current bill and his vision for areas in need of reform, a laundry list which included the structure of the regulatory system, the current proposed consumer protection agency, capital requirements, too-big-to-fail financial institutions and resolution authority, proprietary trading and the safety of markets for investors.
“The regulatory system should be simplified and overlapping jurisdictions of the regulatory agencies should be eliminated,” Heller said. “The proposed legislation accomplishes that goal to a large extent — at least compared to the current regulatory jungle.”
Heller began by stating two principles: that reform should take place in an internationally consistent framework and, reflecting on his regulatory and private market experience, that “neither regulators nor private market participants are infallible.”
“Simply calling for more and more supervision will not make the banks inherently safer,” Heller said. Instead, safer regulatory infrastructure is needed.
While Heller said the current bill before the Senate is refreshing in its attempts to bring clarity and organization to the system, he expressed concern that the bill’s proposed oversight council won’t be effective, as he fears larger commissions “atrophy over time and become quiet backwaters without much power.”
He described the resolution authority debate over how to deal in the future with “too-big-to-fail” institutions requiring bailouts as a Washington turf battle between the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve.
He also advised against housing a new Consumer Protection Agency in the Federal Reserve, describing it as a “budgetary gimmick that will not help to foster the long-term independence of the Federal Reserve System.”
On capital requirements, he said, “Bankers should more explicitly recognize the need for operating capital in addition to the regulatory minimum so that they can weather periods of stress,” suggesting that the IRS could help by letting banks set aside increased pre-tax funds.
Heller argued against the return of the Glass-Steagall Act, which separated commercial and investment banking. Return of this separation would be a “serious mistake,” he said, as it would reduce diversification.
The forty-five minute talk was followed by a lively question and answer session, during which he was asked about financial rating agencies such as Moody’s.
“They’ve done a lousy job,” he commented.
While most audience members were well-versed experts in the financial field, some attendees came to educate themselves about what has been a pervasive topic in recent news.
“I thought his ideas were all good, especially raising the capital requirements for institutions,” said community member Claudia Smith. “I came to know what’s happening and why we’re in the mess we’re in.”